China’s yuan internationalisation faces coronavirus, geopolitical threats despite record cross-border use

China’s cross-border settlements in yuan accounted for a record 47.4 per cent of all of domestic and foreign currency transactions last year

Cross-border use of the yuan surged by 44.3 per cent year on year to 28.38 trillion yuan (US$4.37 trillion)

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Favourable conditions for the increase included the launch of regional pilot projects in the Greater Bay Area, Shanghai Free Trade Zone and Hainan Free Trade Port, according to a report on the yuan’s internationalisation of by the China Banking Association. Photo: Imaginechina

Published: 12:00am, 25 Aug 2021Updated: 5:28am, 25 Aug 2021

Geopolitical tensions and the coronavirus are expected to challenge Beijing’s bid to further increase the global use of the yuan even after its share of China’s cross-border payments hit a record high last year.

China’s cross-border settlements denominated in yuan accounted for 47.4 per cent of all of domestic and foreign currency transactions last year, 9.28 percentage points higher than 2019, according to a report on the yuan’s internationalisation by the China Banking Association.

Cross-border use of the yuan also surged by 44.3 per cent year on year to 28.38 trillion yuan (US$4.37 trillion), of which receipts reached 14.1 trillion yuan and payments rose to 14.28 trillion yuan.

Favourable conditions for the increase included the launch of regional pilot projects in the Greater Bay Area, Shanghai Free Trade Zone and Hainan Free Trade Port, the report said, while China’s relaxation of access to its financial markets also boosted foreign investments into domestic bonds.

US-China tensions risk spreading beyond the realms of trade, investment, and technology in the future, and in turn could exert pressure on the international development of the yuan

China Banking Association

“US-China tensions risk spreading beyond the realms of trade, investment, and technology in the future, and in turn could exert pressure on the international development of the yuan,” said the report from the 769-member China Banking Association, which was established in 2000 to promote the development of the banking industry.

“Since 2020, the global economy has been affected by the coronavirus epidemic and has fallen into a severe recession, global financial markets were turbulent and trade protectionism has been on the rise. Under the influence of the epidemic, the process of yuan internationalisation is facing various internal and external challenges.”

Bernard Aw, Asia-Pacific economist at credit insurance firm Coface, said depreciation pressure on the yuan could result from the US Federal Reserves looking to normalise monetary policy by reducing quantitative easing and raising interest rates.